TORONTO (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Friday as lower oil prices offset domestic data showing the biggest increase in factory sales in 2-1/2 years, while investors prepared for another round of NAFTA talks next week.

At 4 p.m. EST (2100 GMT), the Canadian dollar CAD=D4 was trading at C$1.2507 to the greenback, or 79.96 U.S. cents, down 0.7 percent.

The currency traded in a range of C$1.2400 to C$1.2508. For the week, it fell 0.4 percent.

“The market is really going to have to price in a negative risk premium on the Canadian dollar, driven primarily on the breakup risks of NAFTA,” said Mark McCormick, North American head of FX strategy at TD Securities.

On Wednesday, the Bank of Canada raised its benchmark interest rate by 25 basis points to 1.25 percent, its highest since January 2009.

But expectations for additional rate hikes over the coming months were tempered after the central bank said the future of the North American Free Trade Agreement was the most significant downside risk the economy faced. Canada sends about 75 percent of its exports to the United States.

The sixth round of talks on renegotiating the North American Free Trade Agreement, or NAFTA, is due to take place in Montreal from Jan. 23-29.

Speculators have raised bullish bets on the Canadian dollar for the second straight week, data from the U.S. Commodity Futures Trading Commission and Reuters calculations showed. As of Jan. 16, net long positions had edged up to 17,556 contracts from 17,461 a week earlier.

Canadian manufacturing sales jumped 3.4 percent in November on strength in transportation equipment and petroleum and coal products, Statistics Canada said. Analysts in a Reuters poll had forecast a 2.0 percent gain.

U.S. crude CLc1 prices settled 0.9 percent lower at $63.37 a barrel as investors sold positions on re-emerging U.S. production concerns.

Foreign investment in Canadian securities, particularly bonds, remained strong in November and was on track to hit an annual record, separate data showed.

Canadian government bond prices were mixed across a steeper yield curve. The two-year CA2YT=RR rose 1.5 Canadian cents to yield 1.804 percent, while the 10-year CA10YT=RR fell 15 Canadian cents to yield 2.242 percent, its highest since September 2014.

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